Credit card fraud is a serious problem which is growing rapidly each year. Experts estimate that credit card fraud in the United States cost close to one billion dollars in 1993, which is a significant increase from the eight hundred sixty four million dollars in fraud loss for 1992.
Currently, there are several different types of credit card fraud. The first and most obvious type is when a card is stolen from the cardholder and then is used to make purchases either by phone or in person. The second type of fraud is where information is gathered from a cardholder and a fake credit card is produced, sometimes only with cardboard and a piece of magnetic tape on which the information is inscribed so that the user may withdraw funds from an automatic teller machine (ATM) through use of this counterfeit card. Of increasing sophistication is the counterfeiter's duplication of a card which is virtually indistinguishable from the cardholder's card with information obtained about a specific cardholder's account. Often this is done where a merchant or an employee of the merchant copies vital information about a cardholder's account and then uses it or sells it to a person who then produces the counterfeit cards. In this case, the cardholder may not even have lost his credit card but receives bills for items that he never purchased. If the cardholder fails to report these fraudulent purchases with this type of counterfeit card immediately, he may be liable for the purchases.
Credit card companies have increased their search for ways to discourage credit card fraud in the 1980's. Visa and Mastercard introduced holograms on their cards which they claimed would make the credit card harder to reproduce. However, counterfeit cards have been flowing into the United States from the Far East, where duplication of the credit card company's cards occurs right down to the holographic image on the front of the card. CitiBank, which uses Visa and Mastercard more than any other bank in the United States, has introduced another new device for deterring fraud, consisting of a photo ID on the credit card. All of these methods will arguably protect against some specific types of credit card fraud, such as where credit cards are stolen from the actual cardholder. These methods may help to deter some fraudulent use of the card. However, as the perpetrators of credit card fraud increase their sophistication, it is not unrealistic to suspect that the people issuing counterfeit credit cards could easily place a photograph of a different person on the counterfeit card, which would allow fraudulent charges with ease by someone other than the actual cardholder. Additionally, in the ATM setting, there is still no way to curtail the fraudulent procurement of cash advance funds by someone other than the actual cardholder because no clerk is present to make a visual determination of whether the person using the card matches the photograph on the card.
Therefore, a need exists for a more sophisticated anti-fraud card which will effectively deter fraudulent withdrawal of funds from an automatic teller machine, as well as fraudulent purchases from manned areas.